Ch. Ravindra Babu, Hyderabad vs Assessee

Ch. Ravindra Babu, The Asst. Commissioner Kukatpally, Vs of Income Tax, HYDERABAD Circle-1(2), [PAN: ADUPC0332L] HYDERABAD

(Appellant) (Respondent)

For Assessee : Shri B. Satyanarayana Murty, AR For Revenue : Shri Rajat Mitra, DR

Date of Hearing : 12-05-2015 Date of Pronouncement : 20-05-2015

ORDER

PER SAKTIJIT DEY, J.M. :

This is an appeal by the assessee against the order dated 18-09-2013 of Ld. Commissioner of Income Tax (Appeals)-II, Hyderabad for the Assessment Year (AY) 2009-10.

2. There is a delay of 15 days in filing of the aforesaid appeal. Ld. AR of the assessee himself has filed an affidavit explaining the reasons for delay. After going through the contents of the affidavit and petition explaining the reasons of the delay, we are inclined to condone the delay and admit the appeal for hearing on merits.

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3. The assessee has raised 4 grounds. Ground No.1 being general in nature, do not require any specific adjudication. In Ground No. 2 & 3, assessee has raised the common issue of addition of Rs. 44,35,272/- as deemed dividend u/s. 2(22)(e) of the Income Tax Act [Act].

4. Briefly the facts relating to this issue are, assessee, an individual, at the relevant point of time was the Managing Director of M/s. Chadalavada Infratech Ltd. He filed his return of income for the impugned assessment year on 05-08-2009 declaring total income of Rs. 57,93,850/-. During the assessment proceedings, on verifying the information available on record, the Assessing Officer (AO) noticed that assessee on various dates has withdrawn money from the company's account amounting to Rs. 3,15,43,512/-. The AO being of the view that such withdrawal made by the assessee amounts to deemed dividend as per Section 2(22)(e) of the Act called upon the assessee to explain why it should not be treated as 'income at his hands'. In reply to the query made by the AO, the assessee stated that he has made the withdrawals of the aforestated amount out of the share application money and remuneration deposited with the company. Hence, such withdrawals cannot be treated as 'loans or advances' so as to treat it as deemed dividend u/s. 2(22)(e) of the Act. The AO on the basis of submissions made by the assessee and on verifying the information on record found that the total deposits made by the assessee towards share application money, remuneration etc., in the company as per the consolidated statement of account is to the tune of Rs. 2,71,08,240/-. Whereas, the withdrawal made by the assessee from the company's account is to the tune of Rs. 3,15,43,512/-. Therefore, the excess withdrawal of Rs. 44,35,272/- was treated as deemed dividend u/s. 2(22)(e) of the Act and added back to the income of the assessee. Being aggrieved of such addition, assessee preferred appeal before Ld.CIT(A).

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5. Before the First Appellate Authority also, the assessee pleaded that if the entire deposits made by the assessee in the company including the share application money of Rs. 2,61,50,000/- is taken into account then, the deposits should be more than the withdrawals made by the assessee from the company's account. Hence, withdrawals made cannot be treated as loan and advances so as to bring it within the sweep of Section 2(22)(e) of the Act. The Ld.CIT(A) after considering the submissions of the assessee viz-a-viz the facts and materials on record observed that the assessee was maintaining two separate accounts with the company, one relating to share application money and the other relating to the remuneration paid to him. She observed, as far as the share application money account is concerned, there are only credit entries and no withdrawals have been made. All the withdrawals have been made from the account wherein remuneration paid by the company to the assessee was credited. Thus, Ld.CIT(A) concluded that since the withdrawals are being made from the running account, assessee's plea that deposits made towards share application money should be considered as part of the deposits made by the assessee cannot be accepted. Accordingly, she confirmed the addition of Rs. 44,35,272/- made u/s. 2(22)(e) of the Act.

6. Ld. AR referring to the Ledger A/c of the assessee in the Books of the company in respect of share application money submitted that there is a closing credit balance of Rs. 68,50,000/-. Similarly, referring to the Ledger copy of remuneration payable account to the assessee in the Books of the company, the Ld. AR submitted that in this account also there is a closing credit balance of Rs. 1,34,296/-. Hence, the peak credit balance worked out by the AO which was treated as 'deemed dividend' is totally wrong. The Ld. AR submitted when the assessee is having deposits with the company and withdrawals made from such :- 4 -: I.T.A. No. 85/Hyd/2014 Ch. Ravindra Babu

deposits is much less, the amount cannot be considered as 'loans and advances' given by the company to the assessee to treat it as deemed dividend u/s. 2(22)(e).

7. Ld. DR on the other hand supporting the reasoning of the AO and Ld.CIT(A) submitted that as the assessee is having two accounts, one running account and the other share application money account, both the accounts cannot be mixed up and the deposits/credits in the share application money account cannot be considered for arriving at the deemed dividend.

8. We have considered the submissions of the parties and perused the orders of the revenue authorities as well as the materials on record. It is evident from the assessment order that the AO has accepted assessee's plea that deposits/credits standing in the name of the assessee in the books of the company should also include the share application money. However, on what basis the AO has arrived at the total deposits/credits at Rs. 2,71,08,240/- is not understood. On a perusal of the respective Ledger A/cs i.e., share application money and remuneration payable in the name of assessee in the books of company, copies of which are at Page No. 5 and 7 of Paper Book reveals that in the share application money account, total credits during the year is Rs. 2,68,50,000/- which includes an amount of Rs. 2,61,50,000/- towards share application money, while total debit stands at Rs. 2 Crores. Thus, there is a closing credit balance of Rs. 68,50,000/-. Similarly, on going through the Ledger copy of remuneration payable account of the assessee in the books of the company it is seen that while total credits during the year is Rs. 1,16,77,808/-, the total debit is Rs.1,15,43,512/-. Thus, in both the accounts, there is a surplus of credit over the debit. It is further evident, though, the AO while considering the withdrawals :- 5 -: I.T.A. No. 85/Hyd/2014 Ch. Ravindra Babu

made by the assessee has taken all debits in both the accounts, however, while considering the deposits, he has not taken all credits of both the accounts. If the total credit balance of both the accounts is correctly computed, then, it will come to Rs. 3,85,27,808/- as against Rs. 2,71,08,240/- taken by AO which is much more than the total withdrawals of Rs. 3,15,43,512/- considered by the AO for both the accounts. On perusal of materials on record it is clearly evident that actually there is no excess withdrawal of money by the assessee from the company's account. The so called peak withdrawal of Rs. 44,35,272/- is really non-existent, hence, cannot be considered as deemed dividend u/s. 2(22)(e) of the Act at the hands of the assessee. In our view, the Ld.CIT(A) has failed to properly appreciate the aforesaid factual position. In view of the aforesaid, we find no reason to sustain the addition made and accordingly delete the amount of Rs. 44,35,272/-. In the result, the grounds are allowed.

9. In Ground No.4, the assessee has challenged the levy of interest u/s. 234B of the Act. Charging of interest being consequential in nature, need not be adjudicated in view of our decision herein above.

10. In the result, assessee's appeal is considered to be allowed.

Order pronounced in open Court on 20th May, 2015.

Sd/- Sd/- (P.M. JAGTAP) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER

Hyderabad, Dated 20th May, 2015

TNMM :- 6 -: I.T.A. No. 85/Hyd/2014 Ch. Ravindra Babu

Copy to :

1. Ch. Ravindra Babu, Flat No. 302, S.S. Arcade, VI Phase, KPHB Colony, Kukatpally, Hyderabad. C/o. Venugopal & Chenoy, Chartered Accountants, 4-4-889/16/2, Tilak Road, Hyderabad.

2. The Asst. Commissioner of Income Tax, Circle-1(2), Hyderabad.

3. CIT(Appeals)-II, Hyderabad.

4. CIT-I, Hyderabad.

5. D.R. ITAT, Hyderabad